Satyam- Alls well if it ends well


                        Satyam: All is well that ends well

In Q2, our revenue grew… on the back of a 4-per cent volume growth and rupee depreciation against the US dollar… We believe these factors will also enhance annual margin performance… I would like to emphasise that Satyam is leaving no stone unturned in our efforts to create a sound foundation for our future.

Note to investors from B. Ramalinga Raju, Founder & Chairman, Satyam Computer Services, when declaring the company’s results for the quarter ended September 2008

The balance sheet carries as of September 30, 2008 inflated (non-existent) cash and bank balances… The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam stand-alone…)

Note from B. Ramalinga Raju to the Board of Directors of Satyam dated January 7, 2009

About Ramalinga B Raju

Byrraju Ramalinga Raju (born September 16, 1954) is the founder of  Satyam Computers and was its Chairman until January 7, 2009 when he resigned from the Satyam board after admitting to corporate fraud.

For a man who ran India’s fourth biggest software exporter, Mr Ramalinga Raju was not a showy person.His bungalow in Hyderabad city’s upscale Banjara Hills is an understated two-storey structure, with parking for no more than three or four cars.

Friends who have dealt with the 54-year-old chairman of Satyam Computer Services, say it is difficult to know what he is thinking behind a calm exterior. He goes for morning walks, but seldom appears at the swinging parties of Hyderabad’s elite.Behind his back, they sometimes refer to him as ‘the man with the Mona Lisa smile’.

Mr Raju, a native of Andhra Pradesh state in southern India, had a comfortable head start: He studied abroad, obtaining a business management degree from Ohio State University.

On his return, he began his career with forays into construction. Satyam, , was set up in 1987 with 20 employees as Raju spotted the opportunity in outsourced code-writing. He was on the board of Naandi, a non-governmental organisation based in Hyderabad which does stellar work in providing clean drinking water in rural areas and supplying mid-day meals to more than a million schoolchildren across India. He also runs the Byrraju Foundation, named after his father, and an emergency ambulance service that has won global acclaim.

About Satyam Cmputer Services Ltd

“The truth is as old as the hills” opined Mahatma Gandhi, So a company named “Satyam” (Truth, in Sanskrit) inspired trust, Satyam Computer Services Ltd was founded in 1987 by B Ramalinga Raju. The company offers Information Technology (IT) services spanning various sectors, and is listed on the New York Stock Exhcnage and Euronext.

Satyam’s network covers 67 countries across six continents. The company employs 40000 IT professionals across development centers in India,  the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad,  it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkatta, Bhubneshwar, and Vishakhapatnam

Chronology of Satyam






Ramalinga Raju establishes Satyam Computer Services Ltd.



Satyam gets listed on the Bombay Stock Exchange, IPO oversubscribed 17 times.



Revenues cross ‘$1 billion.’ Raju becomes Nasscom Chairman.



Raju named Ernst & Young Entrepreneur of the Year.



September 23

Satyam awarded with Golden Peacock Award for Corporate Governance and Compliance.

December 16

Satyam Chairman Ramalinga Raju announces plan to buy Maytas Infra and Maytas Properties owned by his sons for $1.6 billion.

December 17

Raju does a U-turn because of negative investor reaction

December 23

Satyam barred from business with the World Bank for 8 years for alleged malpractices in securing contracts. Shares fall to lowest in 4 years.

December 25

Satyam asks World Bank to apologize

December 26

Board member Mangalam Srinivasan resigns followed by exits of members Vinod Dham, Krishna Palepu..

December 30

One of Satyam’s largest investors says it could sell its stake.More suitors join in the fray to acquire Satyam.



January 2

Satyam says its founder’s stake fell by a third to 5.13%.

January 6

Satyam’s i-bank DSPML meets Sebi, informs about accounting irregularitites

January 7

Ramalinga Raju resigns, discloses a Rs 7000-crore accounting fraud in balance sheets about cash which never existed in the company.

January 8

Satyam’s bank Citibank freezes its 30 accounts. Interim CEO Ram Mynampati says company in severe cash crunch and may not be able to pay salaries. Satyam’s auditor PwC faces ire.

January 9

Ramalinga Raju and his younger brother B Rama Raju arrested by Police. Central Govt disbands Satyam board, to appoint its own 10 directors.

January 10

Satyam’s largest investor Lazard seeks a nomination board. SEBI grills Raju.

January 11

New Satyam Board announced, Mr. Deepak Parekh, Kiran Karnik and C Achuthan appointed as board members

Feburary 5

A S Murthy appointed as new CEO

April 16

Company Law Board approved stake sale to Tech Mahindra

The Satyam Scandal – Explained

Satyam, which ironically means ‘truth’ in Sanskrit, was set up in 1987 with 20 employees as Raju spotted the opportunity in outsourced code-writing. Within no time, business was booming. Andhra Pradesh, of which Hyderabad is the capital, has one of the largest pools of skilled manpower in India. Satyam would prove a doughty competitor to its rivals, pricing its services so aggressively that some thought it was prepared to go with minimum profits in order to gain customers. And it expanded aggressively overseas. When he opened his Sydney office a few years ago, he occupied premises vacated by a top global IT firm. In China, provincial leaders vied to invite Satyam to set up operations in their areas. But once Mr Raju sold shares to the Indian public in 1992 and later, went for a New York listing in 2001, pressure grew on him to improve the company’s performance. Ever competitive, he was also in a rush to catch the market leaders, Tata Consultancy Services, Infosys Technologies and Wipro. Raju was obsessed with getting past the billion-dollar sales mark. When he got there, he wanted to post US$2 billion. Satyam posted US$2.1 billion (S$3.1 billion) sales in the year to March 31, 2008.With the ever-rising pressure to perform, Satyam began doctoring the books to show bigger profits, a process that began several years back.

For Satyam, the recent developments are a direct leftover of the past. In fact, the story is about a decade old. In late 1999, IndiaWorld — a largely unknown internet firm — was acquired by Satyam group company, Satyam Infoway, for an eye-popping Rs 500 crore. The consternation that accompanied this deal was not hard to comprehend. IndiaWorld had a topline of just Rs 1 crore and a net profit of an insignificant Rs 25 lakh. At Rs 500 crore, Satyam Infoway, later renamed Sify, was paying this astronomical sum not just for IndiaWorld but for a number of sites that came with it — among them were, and The argument dished out was based on the potential of the internet business and the logic of eyeballs was driving this valuation story. One was not sure about the source of funds and how much money went back to Ramalinga Raju.

A few months later in 2000, shareholders of Satyam were an irate lot. At the annual general meeting (AGM) of the company in Hyderabad in May 2000, shareholders accused Satyam of withholding facts and claimed they were defrauded. This was after the merger of three subsidiaries — Satyam Enterprise Solutions (SESL), Satyam Renaissance Consulting and Satyam Spark Solutions — with Satyam Computer Services. Post merger, 8 lakh shares of Satyam Computers were allotted to C Srinivasa Raju, who was then Satyam Computers’ executive director.

Shareholders contended that SESL had made a rights issue of 12 lakh shares at par just before this merger. A third of this was bought by Satyam Computer while the remaining 8 lakh shares went Srinivasa Raju’s way after they were renounced. Once shareholders of SESL were given shares in Satyam Computers in a 1:1 proportion, Mr Raju got 8 lakh shares at just Rs 10 each, when the shares were trading at a whopping Rs 1,600. The management of Satyam Computers, however, maintained that things were above board, though shareholders thought otherwise.

The seeds of accounting manipulation in Satyam were sown several quarters before Ramalinga Raju’s communiqué to the board on Wednesday, 7th Jan-09. In 2002, the department of company affairs (DCA) was in receipt of a slew of complaints from Satyam’s shareholders that there were accounting irregularities in the company.

Here, it was stated that Satyam’s directors invested unwisely in subsidiaries that were underperformers. This merely facilitated the process of tax evasion and employing methods such as writing off large amounts on depreciation.

 At first blush, Raju’s statement to the board in which he confesses to inflating profits appears a act of contrition by a man who was willing to stand up and face the music for his transgressions. If Raju was dressing up the bottom line, it was only to boost the company’s valuation and ensure that it stayed in the big league of IT services. A higher valuation also enabled Raju to borrow more money against his shareholding.

But Where did the money go?

Raju claims that Satyam inflated profits for many years…

  • By inflating cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books)
  • Accrued interest of Rs 376 crore is non-existent
  • Liability of Rs 1,230 crore is understated on account of funds arranged by “me”
  • Debtors position of Rs 490 crore is overstated (as against Rs 2,651 reflected in the books)

but if this Rs 7,000-odd crore did not exist…

  • How were the salaries of 53,000 employees being paid with a business that ostensibly survived on just a 3 per cent operating margin?
  • Were there more employees on the bench (than revealed)?
  • Was Raju inflating profits to boost Satyam’s valuation, and borrowing money by pledging its shares?

…but if the money did exist…

  • Did the Rajus use Satyam funds to build a land bank of over 6,000 acres via a web of unlisted companies?
  • What happened to the funds raised? There was an ADR issue in 2001, via which Satyam raised Rs 753 crore and on March 31, 2002, Satyam became an almost zero-debt company with Rs 431 crore unutilised amount of ADR proceeds

The cash was king for Satyam

If Satyam was fudging profits, where were the funds for all-cash acquisitions coming from?



Acquired Firm



(Amount in $)



UK based Citisoft PLC

Business Consulting Firm

38Mn (Paid in tranches)



Singapore based Knowledge Dynamcis

Consulting Solution Provider

3.3 Mn (All cash deal)



UK based Nikor Global Solutions

Infrastructure based management services and consultancy group

5.5 Mn (All cash deal)



Chicago based Bridge Stratergy Group

Management consulting firm

35.00 Mn (All cash deal)



Caterpiller Inc

Market research and customer analytics operations

95.5 Mn for both deals (all cash purchase)

S& V Management Consultants

Supply chain management frim

The Downfall of Raju

The downfall of Raju, began in Dec 08 when Satyam attempted to acquire two companies controlled by his sons – Maytas (Satyam spelled backwards) Properties and Maytas Infra – for 1.6 billion dollars in order to compensate for the holes in his books of account. The deal was abandoned 12 hours after it was announced when investors objected, claiming it was an irresponsible misuse of funds and an instance of nepotism. The Maytas deals acted as a red flag for international investors, with a host of companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and breach of contract.
Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption – data theft and bribery – that led to Raju.

The last straw perhaps came on Jan 09 when an Indian associate of Merrill Lynch terminated an agreement on grounds of “material accounting irregularities”.
The Role of Auditors

There is intense debate about the role of PricewaterhouseCoopers, the external auditors of the company in clearing the accounts of Satyam. Auditors are supposed to have checked, verified cash balances, bank statements, assets with relevant confirmations. Satyam was a large company, not a street store; PricewaterhouseCoopers is a globally reputed firm. The auditors cannot hide under the standard clause ‘auditors can be watchdogs and not blood-hounds’ especially when cash and bank balances have been overstated.

Role of Directors

The Companies Act in India has stringent corporate governance requirements of board members. Yet Raju was able to steer the fabricated accounts through his board members for 6-years! This has bewildered the corporate sector and regulators. At times, the company was holding excessive cash, as per the books. This should have invited questions by board members.

In particular, Independent Directors, who are appointed by shareholders at the behest of the board, are selected on the basis of their reputation, knowledge, and wisdom. They are the first defense of minority shareholders. Generally they bring specialized expertise. Independent directors have to meet standards set by stock exchanges too. The Indian Government specifically delineates the role of independent directors in safeguarding the interests of the organization and the shareholders.

An independent director would normally assume that audited accounts have been rigorously examined. This is more so when an internationally credible firm- like Pricewaterhouse Coopers- has audited the numbers. But, they need to still ask the right questions and probe. Sitting on numerous boards compresses the time an independent director has to reflect on what is happening inside the belly of a company.

The Facts about  Insider Trading

Raju has claimed that no one else in the company was privy to the fudging of accounts. But the facts speak something else. BSE figures show a number of senior people in the company, including Raju and CFO Vadlamani were reportedly selling Satyam’s shares over the last 22 quarters.


Name of the Officail


Stake in the Satyam/ No. of shares sold


Ramanlinga Raju


















Vadlamani (Then CFO)



Ram Mayanpari  (Then CEO)

7,00,000 shares and 2,50,000 ADR’s


Kiran Cavale

4,00,000 shares and 10, 000 ADR’s


Rajan Nagarajan

4,30,000 shares and 70,000 ADR’s

Satyam Fraud Investgated

As soon as Ramalinga Raju confessed about the fraud, all the government deparments started investigating about the fraud. The deparments include CBI, SFIO, SEBI, ICAI and RBI.

CBI reveals modus operandi of Satyam fraud

Using cyber forensic techniques, the CBI has deciphered the modus operandi of the Satyam fraud. Following are the findings of CBI for some areas:

Sr. No.




Sales Data

IT company generated false invoices to show inflated sales. 7561 invoices were found to be hidden in the Invoice Management System. These invoices were worth Rs.5,117 crore. The accused already entered 6,603 of these, amounting to Rs. 4,746 crore.



The fraud invoices resulted in creation of inflated receivables


Fixed Deposits

Investments shown as fixed deposit receipts (FDRs) worth crores of rupees were fake and printed from his personal device. The fake FDRs showed huge amounts, as the interest on these deposits was projected to be over Rs 375 crore, as against the actual interest income of Rs 7.42 lakh only.


Bank Guarantee

Manipulated the Bank Guarantees to show balance in bank accouts as Rs. 1800 crore


Balance in bank accounts

Forged the  bank documents showing the existence of the cash balance in five banks including ICICI Bank, HSBC, Citibank and BNP Paribas but the banks clarified that they do not have any cash balance in the name of the firm.


Who all were involved

CBI Chargesheet names Ramalinga Raju, Rama Raju, Suryanarayana Raju, V. Srinivas, S. Gopalakrishnan, T. Srinivas, G. Ramakrishna, D. Venkatapathi Raju, and C. Srisailam.

The revelations by Serious Fraud Investigation Office (SFIO)

The government, on January 13, had initiated an SFIO probe into various corporate aspects of the fraud under Section 235 of the Companies Act. The SFIO is a multi-disciplinary body set up in 2003 to investigate serious financial frauds. It consists of tax professionals, auditors, fraud examiners, capital market experts and banking professionals. Following are the revelations of the SFIO Commitee

Sr. No.




Main areas of inflation

inflation has happened mainly on six accounts, One is by falsifying cash and bank balances, by showing fictitious FDs, by showing fictitious interest being accrued on those FDs, by showing understated liabilities and also by showing overstating debtors.



Inflated to the tune of over Rs. 4500 crores over the last 7 years


Currency Remittance

Amount of Rs. 1940 crore is still unremitted



Books inflated to the tune of Rs. 27167 crore


How long has this
been going on

Fy 01 to Sep 08


Reason for fraud

Very weak invoice management system and weak accounting practices


Accounting Sofware

Loopholes in accounting software and left passwords unsecured to facilitate fraud. software system for managing company’s financial accounting functions was deliberately made very complex for inflating profits


Invoice Management System

Weak password protection making the system vulnerable to misuse. Therefore, fake invoices could be created by unauthorised users. In order to Balance the collections against these fictitious invoices, they were first shown as receipts in the current account maintained with the Bank of Baroda, New York Branch and subsequently they were shown to be transferred to other bank accounts as fixed deposits. There were no validation checks for a number of invoices. The SFIO report points towards a serious control deficiency in the system that facilitated entering of unauthorised transactions, making unauthorised payments and non-detection of unauthorised activities.


Fixed deposits

The promoters were regularly generating fake quarterly balance confirmation letters showing the amounts of fixed deposits and the interest accrued on them. These forged current account balance statements and confirmation letters were fed into Satyam’s accounting software Oracle Financials for the quarterly audits of the company.


Current Accounts

three other bank accounts in India, Citi Bank, HDFC Bank and HSBC were also used for this purpose of falsification of current account balances.

SFIO in its report on the Satyam fraud case said that the IT company’s claims of depositing funds raised through American Depository Shares in 2001 in banks could not be verified. Satyam in 2001 through a public issue in the US raised Rs 760 crore and claimed it deposited the amount in Citibank, New York. Though the company claimed that it transferred Rs 397 crore to India, the SFIO report said, it was wrongly mentioned to have been transferred to India and the actual utilisation of this amount could not be traced as all the amounts were transferred from this account to some unknown accounts through Citibank, Bahrain.




Satyam- Now Tech Mahindra

Tech Mahindra pipped Larsen & Toubro and the Wilbur Ross group to claim the fraud-hit Satyam Computer. According to early reports on Monday, Tech Mahindra is paying Rs 1757 crore for a 31% stake in the company, or Rs 58 per share. Satyam Computer Services has now zoomed 15% to Rs 54.20 ahead of the announcement of the highest bidder for the company on April 13, 2009.


The Satyam Saga cannot be concluded in just few pages. The truth is still to be revealed. The only truth which we know nowis  that  nearly $2 billion of wealth that belonged to 3 lakh shareholders  eroded in a week; the jobs of 53,000 were on the line; the shareholders’ net worth drops from a positive Rs 8,529 crore to a negative Rs 278 crore only because of greed of few people.

But one thing is very true had it not been for a fraud, the way things were manipulated for over seven years in IT major Satyam Computers could be a “work of art”, If it were not for a dishonest purpose, the planning and execution to the minutest detail is truly admirable.

But we still wonderWhat was Raju thinking; since when—and why—was he thinking this way; and how did he do it?



Source by Shweta Rastogi